Slight Dip in August for Nonresidential Construction Spending

"There remain aspects of the economy that continue to frustrate potential construction opportunities, including ongoing job loss and restrictive financing" —ABC Chief Economist Anirban Basu

Private nonresidential construction spending was virtually unchanged in August, falling just 0.1 percent, according to the October 1 report by the U.S. Census Bureau. However, compared to August 2008, spending is down 10.5 percent. Total nonresidential construction spending, that includes both private and public, slipped 0.4 percent from July, and is down 4.7 percent from August 2008 to $684.5 billion (see graph below). In addition, total nonresidential construction spending in June and July were revised downward, from $711 billion to $700 billion in June and from $703.8 billion to $687.6 billion in July.

Among sixteen nonresidential construction subsectors, four posted increases in August with the biggest gains registered in manufacturing construction, up 5.1 percent, and conservation and development-related construction, up 2.5 percent. On a year-over-year basis, manufacturing construction is up 30.4 percent and power-related construction is 9.1 percent higher from August 2008.

Those subsectors with the largest losses from July were water supply construction, down 5.5 percent; amusement and recreation construction, down 5.3 percent; public safety construction, down 3.7 percent; lodging, down 3.4 percent and office construction, down 2.7 percent. Compared to August 2008, lodging is down 36.1 percent, commercial construction is 33.3 lower and office construction is down 22.3 percent.

In contrast, residential construction spending continues to expand, up 4.2 percent in August, but still down 26 percent from one year ago. Overall, total construction spending is up slightly, 0.8 percent at $941.9 billion, but still down from August 2008 levels.

What This Means
“The economic upheavals of the past two years are leaving a permanent mark on the U.S. nonresidental construction industry,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “The nation has responded by putting significant resources into retooling manufacturing plants, enhancing energy production and expanding infrastructure capacity.

“Some of this is attributable to the stimulus package passed in February, but much of this work is being done independent of government support and is simply a response to an increasingly competitive global economy,” said Basu.

“To the extent that these emerging and deepening challenges are consistent with increased construction opportunities, the impact is beneficial. However, there remain aspects of the economy that continue to frustrate potential construction opportunities, including ongoing job loss and restrictive financing,” said Basu.

“Despite the widely held notion that the recession is over, job losses will likely continue for many months to come, thereby diminishing demand for new work space. In addition, access to financing among developers will remain inadequate to permit commercial, office and lodging construction to rebound anytime soon."